One possible prime minister: György Surányi

Yesterday Medián published the results of its poll on the Hungarian public's reaction to Ferenc Gyurcsány's resolve to ask for a constructive motion of no confidence against himself. As part of the survey Medián asked about possible successors to Gyurcsány. Lajos Bokros's name is the best known. Eighty-seven percent of the people know who he is. Péter Kiss, minister in charge of the prime minister's office, is next in line with 71% followed by László Békesi, finance minister in 1994, and Gordon Bajnai, minister in charge of the economy in the present government, each with 69%. Then came György Surányi, former head of the Hungarian National Bank, András Simor, current bank president, each with 67%, and finally, József Gráf, minister of agriculture, with 66%. So, with the exception of Bokros who has been the subject of numerous front-page stories of late, the possible successors are pretty well clustered in terms of name recognition.

By now I feel safe in dropping from my scorecard all the members of the current government--that is, Gráf, Kiss, and Bajnai--because after the first meeting of MSZP and SZDSZ it was evident that neither party wants a politician or a member of the cabinet as the next prime minister of the country. That leaves four possibilities from Medián's list. Let's start with the clear losers from the poll: László Békesi and Lajos Bokros. Their popularity is low: only 39% of the population think that either should head the new government. The most controversial figure is Lajos Bokros, perhaps because people remember only too well the "Bokros package" of 1995 and are also aware of his draconian ideas about future austerity measures. Békesi, one of the architects of the Reform Alliance, is also well known but unpopular, perhaps because Hungarians consider even the Reform Alliance's program too drastic. The clear winner with 47% is György Surányi, followed by András Simor with 42%. Simor already announced that he hadn't been asked and, if he were, he would say no. I don't think that he has to worry. Yesterday a new name surfaced: Tamás Mészáros, an economist and president of Corvinus University (formerly Karl Marx University of Economics).

If I had to handicap this "race" I would put the odds in Surányi's favor, especially since he was seen this morning leaving the headquarters of SZDSZ. Although there have been rumors in the last two days that Surányi would head a "national government" only if Fidesz supported him, it's unlikely that these rumors have substance. First of all, Viktor Orbán talks only of early elections; Fidesz would not support any interim government, "national" or not. Moreover, the relationship between Surányi and Orbán was rocky after the formation of the Orbán government when Surányi was the president of the Hungarian National Bank.

So who is György Surányi?  He was born in Budapest in 1954 and graduated from the Karl Marx University of Economics (today Corvinus University of Budapest) in 1977. After graduation he worked at the Research Institute of Finance (Pénzügykutató Intézet) attached to the Ministry of Finance. In 1986 he left the Institute to work for a year at the World Bank in Washington. In 1990 he was chosen to be the first chairman of the independent Hungarian National Bank. His stint at the National Bank was brief; a change in the law in 1991 gave Prime Minister József Antall the opportunity to name Péter Ákos Bod, an MDF member of parliament, to the post. Apparently at that time Surányi was quite close to Fidesz (then in opposition as a liberal party) and during 1992 and 1993 he met frequently with Viktor Orbán. However, after that date the relationship between Surányi and Orbán soured. It's not clear what drove them apart, although according to an article that appeared in Élet és Irodalom in early 2000 Orbán already at that point wanted to achieve economic growth with the help of the state, an idea Surányi fiercely opposed. After Surányi lost his job at the National Bank he became president of CIB Bank, an affiliate of the Italian Intesa Sanpaolo.

In 1994 MSZP won the elections and Gyula Horn formed a government with SZDSZ. Péter Ákos Bod, the chairman of the National Bank, was not one of Horn's favorites and Horn made no secret of the fact that he "couldn't work with Bod." I remember so well his exact words. Under pressure Bod eventually resigned and for a good three months there was no chairman of the central bank. And during the winter László Békesi, the minister of finance, announced his intention to resign, giving Horn two months to find a replacement. So there was no central bank chairman and the finance minister was on his way out. All the while the country was in dire economic straits. At last Lajos Bokros was named minister of finance on March 1, 1995, and, on the same day, Surányi became central bank chairman. His great accomplishment as bank chairman was his successful fight against inflation. Inflation in June 1995 was 31%, by the end of 1996 only 23.6%, a year later 18.3%, and all the way down to 10% in the last few months of 1998. This accomplishment brought Surányi international recognition. While he was in office the Hungarian forint also became partially convertible. However, inflation remained stuck at the 10% level, and Surányi suggested to the Orbán government that they introduce a more flexible foreign exchange policy because their monetary policy kept the forint too strong. Details of Surányi's proposal are not known, but it was rejected. Interestingly enough, as soon as Surányi left and Zsigmond Járai was named as his replacement the changes necessary for a weaker forint and complete convertibility were introduced.

In any case, Surányi's relations with Fidesz had become strained even before the Fidesz-Smallholders coalition won the elections. Prior to 1998 a study for internal use written by the economists of the Hungarian National Bank that was critical of the economic plans of Fidesz got into the hands of the socialists, who used it in their campaign. Orbán was certain Surányi was somehow complicit. [A footnote to Fidesz's economic plans during the campaign. The economic goodies promised to the population were extravagant;  if the promises had been kept, all the accomplishments of the Bokros-Surányi team would have been undone. However, as we know, Orbán didn't honor his promises and instead pursued a strict fiscal policy in his first two years in office. The victim of these campaign "lies" was László Urbán, who was initially proposed as the new finance minister. However, Urbán happened to say that "there is a difference between the campaign and government programs." At that very moment, Urbán's political career came to a screeching halt.]

Surányi served his full six-year term, which expired in 2001, when he returned once again to head CIB Bank. Once out of public office he didn't say much about monetary and fiscal policy, but here and there he criticized his successor's policies. He considered both Járai's efforts to lower inflation "by artificial means" and the Orbán government's spending spree in its last two years harmful.

In 2006 he was asked by Ferenc Gyurcsány to take part in the work of Convergence Council that was to prepare a program acceptable to the Council of the European Union. The gist of the convergence program was to lower the deficit to under 3% in the shortest possible time in order to receive subsidies from the Union designed to help the less developed countries move closer to the more developed west.

Surányi received many prizes and accolades. For instance, in 1993 the World Economic Forum named him the "Global Leader for Tomorrow." In 1996 Euromoney honored him as "The Best Central Bank Chairman in Central Europe." Tomorrow, if it still looks as if Surányi is a viable candidate I will try to outline his current ideas on the path Hungary should follow in this world economic crisis.

Comments

[Hank]

Surányi wants at least the assurance that Fidesz will not go into an "all out" attack against the measures of an interim government to keep the budget in hand, the economy going etc. Of course, Fidesz will never support such a government in public, but saying that out loud is something different than being obstructive anyway you can, as Fidesz did with the Gyurcsány government. If Surányi takes on the job, be sure Orbán has given him the assurance that he will have some room to manouvre. If Surányi says no, Orbán has told him no way.

[Odin's lost eye]

Again we see the personal and political ambitions of one man, Orban standing in the way of Hungary's road to recovery. I hope the people will remember this!

[Mark]

I don't often find myself agreeing with either Solyóm or FIDESZ, but I find it difficult to see how a government, led by someone with no political base in either of the parties likely to support him, and with only - at best - eleven months is going to have to room for manouver, or the authority to do anything. Especially when any programme - even one which is not monetarist, and is growth oriented - will bring noticeable reductions in the average standard of living over the next year. I don't even think that tacit FIDESZ support - which is surely not going to come now Solyóm has intervened - would help this government very much. The population is simply not prepared for what is coming their way, and any government will need the maximum ammount of democratic legitimacy it can get. OK, that government may be led by Orbán, but I think Hungary just has to take that chance.

[NWO]

Suranyi is a smart guy with basically the correct instincts. But I agree with Mark. How much can he do? What kind of guarantee can he get from the MSZP to support his programme, which will be a savage cutting of the budget (particularly transfer payments) and some small rejigging of the tax system. The MSZP caucus does not have the stomach to go "all in" on this, and I expect that any interim government will likely fail under its inability to meet the IMF conditions, thus forcing a new election sometime in the fall.
On another matter, it does strike me that Solyom has once again acted irresponsibly and in a partisan manner. It seems to me that what the MSZP and existing PM are trying to do may not be in the "best interests" of the public (something open for debate), but that it is certainly constitutional and contemplated within the Hungarian political framework. As Solyom's job should be to defend and protect the constitutional system and be strictly non-partisan in doing so, he has once again failed in his most basic constitutional duties (as the MDF have to their credit pointed out). Let no one forget, however, the fact that such a person is even in the job is directly a result of the almost complete incompetence of the MSZP and SzDSz.

[Hank]

As was said in an earlier discussion, there is nothing much fundamental Hungary can do anyway in this global crisis, but ride it out and see where that gets us. Still, in the meantime keeping a tight budget, implementing some reforms, pointing the way for future reforms, make life a little bit easier for business (especially SMEs), soften unemployment as much as you can, etc. can make a hell of a difference, certainly in the perception of international financial and export markets which are so crucial for Hungary.

I think Surányi can do just that, so when the international economy starts getting out of this recession (which should hopefully be sometime in 2010) a new long-term strategy can be worked out to get the Hungarian economy on a faster track again. To me, that sounds like a rational option for Fidesz as well, (but hell, what has ratio got to do with it?)
I think an election campaign now is not a good idea because it will be ugly and bloody and disruptive. Of course in the end Fidesz will win, but as you all know, they have no program and whether they (that is Orbán) will have the guts to implement real reforms (which means doing what they always blamed Gyurcsány for doing: saying one thing now and doing something different later),I very much doubt.

I must say it also baffles me how "markets", which supposedly are so fond of certainty, now suddenly prefer the so entirely uncertain Fidesz option (see Portfolio). But then, it are especially the market representatives from Hungary which say they do, while market representatives abroad are not at all that certain (because they are not influenced that much by the inner political strife, maybe?).

By the way: quite a few international companies have recently announced or will shortly announce they will set up new activities in Hungary: BP, Scania, Decathlon, Alsthom, Dior, 3M, Kurstjens, Guntner, Infineon, Eclipse, Ureco, Hilton. So surely, not all is just negative.

[Mark]

OK, let's look at the realities of this situation.

I'd be astonished if without some major restructuring of its debt, Hungary will be able to sustain the kind of growth path needed to recover from this after 2010. I'm sorry, but with the current debt burden it faces a very painful reduction in the standard of living and the level of welfare protection between now and 2011, followed by a prolonged period of stagnation - in other words the population with live far worse in five years than they do now, unless the attitude of other EU states towards CEE changes radically.

All a government can hope to do without early elections is make the minimum cuts necessary to keep the show on the road to 2010, by keeping the IMF happy, and then let the next government make the really savage cuts after the election. And even that requires that nothing nasty happens in Ukraine, Russia, or the Baltic states which would create a contagion effect for Hungary.

The government that would then have to do this will have no democratic legitimacy - nobody elected it, and it will find it very difficult to deal with protest. And then as NWO points out, most of the MSZP will not like this government, and, mindful that half of them face losing their seats, and many of their supporters their jobs and their contracts, will become increasingly panicky. The SZDSZ will be similarly panicky, and will want more reform. In short nothing will be solved.

As far as FIDESZ is concerned - I don't know whether they have a programme, or not. I suspect personally that they are split on what to do about the economic crisis. But, in any case, they are going to be faced with some fairly stark economic realities, and their room for manouver will be nil. I suspect they will face the same collapse in their confidence that the MSZP has faced since 2006, when the population discover that they are incapable of reversing the problem. It is more what happens next that concerns me ...

[NWO]

The whole process, typical for Hungary, has descended into farce. Anyone whoever worked in a bank and is not a out and out FIDESZ supporter is now being considered for the PM post.
Elections have to happen. The population wants it. The Government has no strategy and by now no credibility, and no one could now hope to accomplish anything at all. Since the only sensible solution is an election, Hu. will certainly find a way not to have one. Even I cannot imagine, however, Gyurcsany remaining.

Anyway, as Mark said, Orban will be between a rock and a hard place. And it will be on his shoulders whether the IMF loan is "rolled over" or called. I think-if an election does occur- he will within a year deeply regret an early election, and will have wished that a caretaker government had stayed in placeuntil Spring 2010. With any luck, most of Europe will start to emerge from this recession in early to mid-2010, but Hungary will not. Orban will now own that legacy.
Finally, the Fx market has now basically fully discounted an election and has barely moved to a weaker position since Suranyi dropped out. The market realizes that the certainty of a FIDESZ dominated Government is far better than total aimlessness.

[Eva S. Balogh]

NWO: "Since the only sensible solution is an election, Hu. will certainly find a way not to have one."

We don't agree. Early elections would be the worst possible solution. Six months down the drain and a possible 2/3 majority in parliament. And such majority is dangerous regardless which party we are talking about. But it would be especially dangerous in case of Fidesz. I'm basing this opinion on past acts and words of Fidesz politicians.

[NWO]

I fear, like you, the idea of FIDESZ having a super majority, and therefore being able to change the Constitution. I don't like the idea that the country becomes less liberal, more nationalistic and more self involved.

But the thing is, we are living through the most dangerous economic crisis for a number of generations. And Hungary is going to suffer more than many countries. Much of the progress that Hungary has experienced since 1990 (and I believe unlike Mark there has been substantial positive changes as well a negative ones)are at risk of being lost. And with it, the very fragile social fabric is really at risk of being torn apart. Moreover, consequential decisions for the next generations of Hungarians need to be made now. I don't like FIDESZ being able to make those decisions unilaterally, but I like less the current vaccum and the complete breakdown between the public and the politicians. Unbelievably difficult decisions need to be made, and these can only be made if there is some societal consensus behind the politicians that make those decisions. Like it or not, the people want change and seem to want FIDESZ (in part because, lets face it, the MSZP did a pretty poor job since 2002). I want change. My choice would not be electing Orban, but sadly I don't get to choose.

[Eva S. Balogh]

"NWO: "And Hungary is going to suffer more than many countries."

I have the feeling that this is not really so. See some of the statistics I quote in today's blog about the GDP declines in other countries. Bajnai just now announced a new factory that will employ 500 workers. The loss of jobs in the United States is much greater than in Hungary. The US loses about half a million jobs a month and that is comparable, relatively speaking, to all jobs lost in Hungary since October.

[Andras]

The crisis will bring about a new drive for business to relocate manufacturing into low-cost production sites. Thus, Hungary will suffer a lot, but probably less and for shorter period, than countries like Spain or Ireland. Of course, this is a poor country, thus it has less safety belt. There already begun a new exodus of jobs from high wage part of Europe into low wage Europe. In this sense, I think, if Hungary could avoid the worst, like bankruptcy or large scale outburst of anger etc, than the prospects are not so bad. It has the chance to recover earlier than many at the periphery of the euro-zone. Of course, we need a stable government and good governance to be able to exploit the "good" side of the crisis. Whether we would have one, that is a big question.

[Mark]

Éva: "Early elections would be the worst possible solution. Six months down the drain and a possible 2/3 majority in parliament."

I'd normally agree - but we are already in a pre-election period; the choice really is whether we want six wasted months, or eighteen wasted months.

I don't believe the danger of a two-thirds majority is going to be any less in spring 2010, than it is today. The economy is going to contract in the next year, and this will be felt by the population. The parties that support even an expert government will be punished at the ballot box for the rises in unemployment and falls in living standards that will come. It seems to me that the MSZP will peform worse the longer it hangs on.

The issue of the two-thirds majority is a product of the majoritarian nature of the Hungarian electoral system. I did a few back of the envelope calculations - based on the kind of trends in the distribution of the vote we have seen, FIDESZ would need 47-48% and at least an 8% lead over the MSZP, with no other party clearing 5% to be likely to win a two-thirds majority. I don't think the MSZP can win 39-40% of the vote - not now, not next year. Their best hope is to boost the MDF, so they poll strongly enough to deny FIDESZ the two-thirds majority.

[Mark]

András: "The crisis will bring about a new drive for business to relocate manufacturing into low-cost production sites."

I'm pretty sure this is the one thing that won't happen. The problem is that while cost cutting makes sense from the point-of-view of an individual business, if everyone does it, it generates a problem of demand for the goods that are being produced. During the 2001-2007 business cycle this problem was resolved because a number of countries acted as debtors of the last resort, financing the purchases of manufactured goods through borrowing against inflated asset prices. This system has collapsed. If no-one can afford the cars, or other high value manufactured goods it doesn't matter how cheap they are to produce. The economic model won't work.

To make this a viable strategy to restore the profitability of companies, indebted consumers in the US, the UK, Spain, have to start spending again at the same or greater levels than before 2007. I really have to ask the question of how this will be financed?

I actually think that was is more likely, is that rather than creating new, low cost plants, companies in sectors like the motor industry will be forced to cut their total production levels - almost certainly with elimination of some of the big players. These cuts in production will create the conditions for a recovery in profitability. Where will be employment come from? Well, we need a new growth model, probably based around finding ways to cut energy consumption, and by replacing jobs with new ones in the sectors necessary to underpin this effort.

As far as relations between the two halves of Europe are concerned, I suspect that once the imbalances between countries are reduced the circumstances that allowed them to come into being - a financialized economy with an oversupply of cheap money - will not reappear for the foreseeable future. Therefore the space for countries, like CEE, to attract FDI on the basis of lower costs will be reduced severely as per the pre-2007 situation.

As far as Hungary's situation relative to others is concerned, the most important determinant of how bad the crisis is, and how well the economy performs in the recovery phase is whether it can solve the public and private sector debt burdens. If this not addressed then the burden of this debt is likely to be so great as to raise the issue of whether - not how well - Hungary recovers along with the world economy.

[Gábor]

Mark: "I don't think the MSZP can win 39-40% of the vote - not now, not next year."

After this weeks farce I wouldn't even be surpised if MSZP would win less votes than the MDF. Especially when Bokros will be prime minister ...
Although up to this point I denied the possibility of the so called "Polish model", the collapse of the large leftist party in Hungary, the complet ineptitude of the party leaders revealed this week and the way they manouvered themselves into an otherwise quite predictable trap probably can lead to a disaster.

[Mark]

Gábor: "After this weeks farce I wouldn't even be surpised if MSZP would win less votes than the MDF."

I think it is bad for the MSZP - but not that bad!

The only way Gyurcsány's manouver could have worked to the MSZP's long-term advantage was if his intention from the outset was to have early elections on the grounds that going now would be better than going in a year's time and preserving as much support as he could to come back in 2013. In others, by losing less badly now than next year, the MSZP would strengthen its position for a comeback. Even this is a desperate measure. If this wasn't the plan at the outset - goodness knows what he was thinking of!

[Gábor]

Preserving support with this series of events? God, if Gyurcsány has a plan for the change of the prime minsiter than why didn't he ensured the acceptance of the appointment from a suitable candidate? If he wanted early elections than it would have been easier to vote with Fidesz at Monday on the dissolution. Not to mention that - as I suppose - there was serious plans regarding early elections even in the MSZP as well. It would have been less ruinous and more honest to support one of them. If he was eager to distance himself from the unpopular politics of crisis managment, than it would have been better to install a government and vote a law of approbation, allowing the next cabinet to amend the budget with government ordnances, thus having the power to reduce expenses if necessary but only as a temporary measure (maybe it would have brought other advantages as well, for example at last we would know how far those astronomical numbers regarding possible savings in the public services are ralistic), but fighting the unpopular reform proposals. The whole story only revealed the selfishness of the MSZP leaders and now they are facing either disaster - the SZDSZ imposes Bokros on them Bokros, or disaster - early elections after the remanants of the belief and confidence in the party are certainly over with this weeks production.

[Mark]

Gábor: "If he wanted early elections than it would have been easier to vote with Fidesz at Monday on the dissolution."

Well, exactly - or at least submit a motion of its own on Thursday. I obviously credited Gyurcsány with more intelligence than he has demonstrated.

It has been obvious to me for most of the past two years that the alternatives to Gyurcsány within the current parliamentary arrangement - the "expert" government, or the MSZP-left led government (with Péter Kiss most likely as Prime Minister) were complete illusions. This is because the ideological gap between the MSZP and the partners it needs to form a stable parliamentary majority on economic and social policy have been widening since 2006. This process was accelerated by the referenda and their fallout. While Gyurcsány as a sitting Prime Minister had the advantages of being the offfice-holder (not to mention the powers of partonage) to cobble together parliamentary majorities to survive, it was clear that a majority of the current parliament would not be able to agree on the name, or programme of a replacement. I believed that this was as obvious to Gyurcsány as to me. Therefore in resigning he was effectively casting a vote for early elections.

Clearly though there was no such plan. I can understand that Gyurcsány's position had become untenable - it was clear that there was nothing he could really do for the economy, or even to improve MSZP prior to the election, and the left withing the party were becoming increasingly restive. Did he just panic late last week?